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Latest market-sensitive news and views - Nov. 1

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FOMC Likely to Leave Benchmark Interest Rate Unchanged, Powell Comments Key


— Equities today: Asian and European stocks were mixed to firmer overnight. U.S. Dow opened up around 45 points and then went slightly lower, then returned to higher values.

U.S. equities yesterday: The Dow gained 129.91 points, 0.38%, at 33,052.87. The Nasdaq rose 61.75 points, 0.48%, at 12,851.24. The S&P 500 gained 26.98 points, 0.65%, at 4,193.80.

For the month of October, the S&P 500 was 2.2% lower. The Nasdaq lost 2.8% and the Dow lost 1.4%.

— Quotes of note:

  • Fedwatch. Futures fell and Treasuries gained ahead of the Fed's rate decision today. A hawkish pause is expected. That may be a big mistake, writes former NY Fed chief Bill Dudley. Wall Street is divided on what comes next. Economists at Vanguard and Bank of America say the Fed will probably have to raise interest rates again to blunt inflation. But Mohit Kumar, chief financial economist at Jefferies, said that "the bar for another hike is high."

  • Canadian GDP remains unchanged in August, posing challenge to Bank of Canada's growth projections. In August, Canada's Gross Domestic Product (GDP) remained stagnant for the second consecutive month, a development that provides the Bank of Canada with further evidence that higher interest rates are effectively curbing demand. This performance places the third-quarter growth well below the central bank's initial projection of 0.8%, according to strategists at TD Securities who add this suggests the data may encourage the Bank of Canada to exercise additional patience in its monetary policy decisions. However, policymakers will closely monitor whether softer economic growth effectively dampens inflation before abandoning any potential plans for further rate hikes. TD Securities anticipates a contraction of 0.2% in the third quarter and 0.1% in the fourth quarter, which they believe would align with a gradual and controlled economic slowdown for Canada, particularly given the continued tightness in the labor market.

  • How a movie impacted Biden re: artificial intelligence. "If he hadn't already been concerned about what could go wrong with A.I. before that movie, he saw plenty more to worry about." — Bruce Reed, the deputy White House chief of staff, who said President Biden grew more concerned about the perceived dangers of artificial intelligence in the wrong hands after watching Mission: Impossible — Dead Reckoning Part One.

— Major court ruling rocks U.S. home sale market. A significant court ruling in Missouri against the National Association of Realtors (NAR) and large brokerages has the potential to disrupt the home buying and selling business in the United States. The lawsuit, brought by Midwestern homeowners, accused the NAR and brokerages of conspiring to artificially inflate commissions by obliging homeowners to pay buyers' agent fees when listing their properties.

The court's decision, which took less than three hours, favored the plaintiffs, awarding them nearly $1.8 billion in damages, which could potentially be trebled to over $5 billion by the presiding judge. This ruling has been described as an "earthquake" in the real estate industry.

Under the current system, homeowners who do not agree to the terms, which often include fees averaging around 5% to 6% of the total transaction, may not have their homes displayed on the primary database used by most home-listing services. This restriction, according to the plaintiffs, limits the ability of buyers and sellers to negotiate lower commission rates and results in thousands of dollars being added to home prices.

The potential implications of lower commissions have already impacted publicly traded brokerages, with eXp World Holdings experiencing an 8.7 percent decline in its shares and Compass falling 6%.

The NAR announced its intention to appeal the ruling, while other defendants in the case, such as Berkshire Hathaway's HomeServices of America and Keller Williams, are considering appeals. However, the industry's legal challenges are far from over, with the NAR facing another antitrust lawsuit, and the Justice Department seeking to reopen a settlement related to brokerage fees reached during the Trump administration.

Market perspectives:

— Outside markets: The U.S. dollar index was stronger, with most foreign currencies weaker against the greenback. The yield on the 10-year U.S. Treasury note was little changed around 4.89%, with a higher tone in global government bond yields. Crude oil futures moved sharply higher ahead of U.S. gov't inventory data due later this morning, with U.S. crude around $82.80 per barrel and Brent around $86.75 per barrel. Gold and silver futures were weaker, with gold around $1,992 per troy ounce and silver around $22.78 per troy ounce.

— Bank of Japan Intervenes in bond market to curb rising yields after recent policy tweak. The Bank of Japan (BOJ) took an unexpected step by entering the bond market to slow down the increase in sovereign yields. This move comes just a day after the BOJ announced a loosening of its control over debt prices. The central bank's unscheduled purchase operation was prompted by the 10-year bond yield reaching 0.97%, marking a fresh decade-high. However, it's important to note that this yield is still below the 1% cap that the BOJ had previously removed in favor of a more flexible policy approach.

Market reaction to this intervention was relatively muted, with traders trimming one basis point off the 10-year yield, which later recovered half of that loss. Bond futures also pared losses, and the yen, sensitive to interest rate shifts, experienced only a slight retreat against the dollar.

This move indicates that the BOJ is committed to remaining active in the market even after adjusting its bond-yield cap. Governor Kazuo Ueda, after announcing the policy tweak, expressed the belief that yields would not rise significantly beyond 1%. However, many analysts see this as part of the BOJ's broader strategy to normalize its monetary policy in response to inflation in Japan, which is nearing a four-decade high. Aligning its policy with more hawkish stances held by other central banks is also seen to address the issue of a weak yen.

Of note: The BOJ's reduced presence in the debt market, where it holds over 50% of outstanding bonds, could potentially encourage more active participation from investors. Observers in global markets are closely monitoring whether the rise in yields will prompt Japanese investors to repatriate funds and reduce their extensive holdings in assets like US Treasuries, European, and Australian bonds.

Perspective: On July 27, just before Governor Ueda's first yield-curve control adjustment, the 10-year yield stood at a mere 0.44%, highlighting the significant change in market conditions since then.

— Ag trade update: South Korea purchased 125,000 MT of corn – 57,000 MT of optional origin and 68,000 MT expected to be sourced from South America or South Africa – and tendered to buy 177,000 MT of rice, mostly from the United States. Jordan tendered to buy up to 120,000 MT of optional origin milling wheat.

— A month's worth of sugar exports have piled up in Brazilian ports, just as the world is desperate for the top producer to help ease the global shortages that have sent prices to their highest since 2011. Link to details via Bloomberg.

— Economists urge better preparation for El Niño impacts on food, power, and human health. Writing in the New York Times, three economists specializing in sustainable development, Amir Jina, Jesse Anttila-Hughes, and Gordon McCord, emphasize the importance of preparing for the El Niño-Southern Oscillation (ENSO) climate phenomenon. ENSO, with its recurring phases like El Niño, La Niña, or neutral, can have significant global weather impacts on temperature and precipitation. The authors argue that the predictability of ENSO events, which can often be forecasted many seasons in advance, should be leveraged to prevent damage to various sectors, including food systems, power supplies, and human health. While some countries already prepare for ENSO events, developing nations may not adequately address the threats they pose, such as droughts or heavy rains that can lead to malnutrition in children.

The authors call for organizations like the United Nations and wealthier nations to do more to support these vulnerable countries in preparing for and mitigating the impacts of ENSO events. Currently in an El Niño phase, characterized by warmer-than-usual sea surface temperatures, it is crucial to use this knowledge to prevent severe hunger and its long-term consequences for children in affected regions.


Senate Republicans push for policy changes in U.S./Mexico border provision amid broader spending package discussions. Senate Minority Leader Mitch McConnell (R-Ky.) called for Democrats to accept a substantial U.S./Mexico border provision as part of a larger supplemental spending package. While President Biden requested $13.6 billion for border security, congressional Republicans from both chambers are emphasizing the need for policy changes to address the flow of individuals crossing the border, not just additional funding. House Republicans have been advocating for measures, such as those in their border and immigration package (HR 2), to prevent the release of asylum seekers into the United States.

Although Majority Leader Chuck Schumer (D-N.Y.) urged the Senate to act swiftly on providing aid to Israel, the Senate has not yet produced a bill and instead scheduled an Appropriations Committee hearing featuring Defense Secretary Lloyd Austin and Secretary of State Antony Blinken.

Senators have also announced another hearing for the following week, featuring testimony from Homeland Security Secretary Alejandro Mayorkas and Health and Human Services Secretary Xavier Becerra.

Senate Appropriations Chair Patty Murray (D-Wash.) and Vice Chair Susan Collins (R-Maine) are currently crafting a supplemental spending bill. Sen. Collins emphasized the interconnected threats posed by Russia, Iran, and China, highlighting the need to protect national security interests and the international order established following World War II.

— Senators aim to pass their three-bill government-funding package today, the chamber's first vote on passage of an appropriations measure for fiscal year (FY) 2024 — Military Construction-VA (S 2127), Agriculture (S 2131) and Transportation-HUD (S 2437) appropriations bills. Senators adopted two amendments yesterday to bar funding for Chinese entities and for drones linked to China, Russia, Iran, North Korea, Venezuela, or Cuba.

The House has passed five of its 12 FY 2024 appropriations bills, including a Homeland Security bill (HR 4367) that it is not sending on until the Senate acts on a House border security bill (HR 2). The House returns Wednesday with plans to start consideration of its Interior-Environment (HR 4821), Legislative Branch (HR 4364) and Transportation-HUD (HR 4820) appropriations bills.

House Speaker Mike Johnson (R-La.,) has laid out an aggressive schedule for consideration of the remaining spending bills with plans to bring to the floor — the Financial Services (HR 4664) and Commerce-Justice-Science (HR 5893) bills next week, and the Labor-HHS-Education (HR 5894) and Agriculture (HR 4368) bills the week of Nov. 13. The House did not muster enough votes to pass the Agriculture spending bill in September.

Federal gov't funding runs out Nov. 17.

— Senate push for shorter stopgap sets up collision with House GOP. Senate appropriators are considering a continuing resolution (CR) that would run until mid-December, which would put the chamber on a collision course with new House Speaker Mike Johnson (R-La.,) who's been pushing to kick final spending decisions until Jan. 15.


— Group of foreigners and wounded Palestinians were allowed to leave Gaza, Arab TV channels reported. The Israeli military said a Gaza refugee camp hit in a deadly strike overnight was used as a training center by Hamas, designated a terrorist group by the U.S. U.S. Secretary of State Antony Blinken returns to the region later this week.


— Ukraine unveils plan to regulate food exports, address tax evasion, and boost revenues for war efforts. Ukraine revealed its strategy for regulating food exports, with a focus on registering food export companies, in a bid to tackle issues such as the substantial portion of agricultural products being purchased with cash, resulting in unpaid taxes and the concealment or delay of foreign currency earnings held abroad. According to a recent government resolution reported by Reuters, only companies registered with the State Agrarian Register, classified as value-added taxpayers, and free from tax debts or delays in foreign currency return will be permitted to export Ukrainian goods. The government aims to safeguard the rights of agricultural entities conducting legal economic activities through these measures. The initiative seeks to address the challenge of generating funds for agricultural exports conducted in cash, where taxes often go uncollected. These efforts are critical for generating additional revenues to meet the needs of Ukraine's ongoing conflict with Russia.


— Senate confirms Jack Lew as Israel ambassador. The Senate on Tuesday confirmed former Treasury Secretary Jack Lew, 68, as the new U.S. ambassador to Israel, setting him up to take on the critical role amid the country's battle against Hamas. Senators voted 53-43, with two Republicans (Rand Paul, of Kentucky, and Lindsey Graham of South Carolina.) joining with every present Democrat. Tom Nides, the former U.S. Ambassador to Israel, left the post in July. Stephanie Hallett, a career diplomat, has been the top official at the U.S. Embassy in the interim.

Background. Lew, who is Jewish, has been active in pro-Israel advocacy circles. He was White House chief of staff for the last two years of President Barack Obama's first term and then treasury secretary from 2013 to 2017.


— China's factory activity contracts unexpectedly in October, signaling economic challenges. In an unexpected turn, China's Caixin China General Manufacturing Purchasing Managers' Index (PMI) dropped to 49.5 in October 2023 from 50.6 in September, falling short of market expectations, which had forecasted a reading of 50.8. This decline marks the first contraction in factory activity since July and is indicative of ongoing challenges in the country's economic recovery. Additionally, the report reveals a renewed drop in output, declining foreign sales for the fourth consecutive month, and a 13-month low in business confidence.

— China commits to long-term mechanism to address local debt risks at key policy meeting. China pledged to establish a long-term mechanism to address debt risks associated with local authorities during the Central Financial Work Conference, which President Xi Jinping attended. The conference also emphasized the need for Communist Party control over the financial system, funding for innovation, hi-tech manufacturing, green technology, and support for small-to-medium-sized companies. This commitment to resolving local government debt risks includes the optimization of debt structures for both central and local governments. Analysts suggest this may involve the central government taking on more funding responsibilities, while local governments work to reduce implicit debt problems, potentially involving deleveraging.

China initiated a debt swap program worth over 1 trillion yuan ($137 billion) in September to replace hidden debt with lower-interest-rate bonds. Several regions have released their refinancing plans in response to this program.

The conference also emphasized the timely handling of risks at small and medium-sized financial institutions, including local banks, with the aim of supporting large state-owned financial institutions to become "better and stronger." Additionally, the Communist Party's control over the financial sector and the crackdown on corruption were highlighted. The conference underlined the importance of a "centralized and unified" leadership approach in the financial sector.

China also reiterated its commitment to opening up its financial sector to attract foreign financial institutions and long-term funds, promoting Shanghai and Hong Kong as international financial centers. The statement stressed the need for balance between financial opening and security.

Regarding real estate, the conference emphasized the need to meet the "reasonable" financing needs of real estate companies and called for equal treatment of all developers, regardless of ownership, in terms of financing.

Bottom line: While the conference addressed several key financial issues, some analysts believe that the meeting lacked urgency in providing tangible plans to resolve immediate problems.


— Sen. Kyrsten Sinema (I-Ariz.) is in third place in a three-way Senate race in Arizona via an internal GOP poll, shared with Republican senators by NRSC Chair Steve Daines. It shows that Democratic Rep. Ruben Gallego leads with 41%, Republican Kari Lake follows with 37%, and Sinema trails at 17%. Daines noted that Sinema is currently more popular with Republicans than Democrats, but observers say this could change once Lake and GOP-aligned outside groups begin running ads. In a head-to-head matchup, Gallego leads Lake 49%-44%. Daines and NRSC Executive Director Jason Thielman reportedly believe that Sinema has little chance of getting re-elected, and Senate Republicans anticipate that Lake, a strong supporter of Donald Trump and a 2020 election denier, will be the GOP nominee. Lake is leading Pinal County Sheriff Mark Lamb 58%-27% in the GOP primary, according to the poll.

— The New York Times explores why North Dakota Gov. Doug Burgum is staying in the Republican presidential primary, even as he struggles to break through in polling as he's sunk millions of his own money into the race. 

— Nearly two-thirds of Republican caucusgoers say Donald Trump 'can win an election against Joe Biden, regardless of his legal challenges, a new Iowa Poll finds. A new Des Moines Register/NBC News/Mediacom Iowa Poll asked likely Republican caucusgoers for their view on the election effects of Trump's court battles. He faces charges related to the Jan. 6 attack, possible election interference in Georgia, classified documents in Florida and hush money payments in New York. Nearly two-thirds of respondents, 65%, say Trump "can win an election against Joe Biden, regardless of his legal challenges." Another 32% say his legal challenges "will make it nearly impossible for him to win an election against Joe Biden." Some 4% of respondents say they aren't sure. The poll of 404 likely Republican caucusgoers was conducted Oct. 22-26 by Selzer and Co. and has a margin of error of plus or minus 4.9 percentage points. 

— Wasserman's 2024 House overview: 'A year out, the House is a game of inches.' In an insightful analysis, David Wasserman of the Cook Political Report with Amy Walter provides a comprehensive overview of the upcoming 2024 House elections. As the dust settles from recent political events, Wasserman highlights the significance of the ongoing battle for control of the House of Representatives.

The recent upheaval in the House, triggered by a small faction within the Republican Conference challenging Kevin McCarthy's (R-Calif.) speakership, underscores the GOP's fervent desire to expand their majority. Meanwhile, House Democrats are confident that they can flip the five seats needed to regain control by portraying Republicans as "dysfunctional" and unworthy of leadership.

Wasserman breaks down the numbers, revealing that Democrats have a strong opportunity to recapture at least five seats. Notably, there are 18 Republicans representing districts that President Joe Biden carried in 2020, compared to only five Democrats in districts won by former President Donald Trump. This disparity provides Democrats with a strategic advantage, especially in states like California and New York, where presidential-level turnout could sway districts in their favor.

One key observation is that many of the "Biden Republicans" in these contested districts are freshmen with less established political reputations. Democrats are capitalizing on this by highlighting these Republicans' support for figures like Speaker Mike Johnson and Rep. Jim Jordan, portraying them as aligned with the conservative Freedom Caucus.

Wasserman delves into the evolving dynamics of the House GOP campaign apparatus, particularly with the transition of leadership from McCarthy to Mike Johnson (R-La.). While McCarthy has been a formidable fundraiser and recruiter, Johnson is expected to carry on the legacy of the Congressional Leadership Fund Super PAC, maintaining continuity in political operations.

The report also discusses looming legislative challenges, including the expiration of the continuing resolution, border funding, and a potential Biden impeachment inquiry, all of which could shape the political landscape. However, Wasserman emphasizes that the outcome of the 2024 House race will likely hinge on three critical factors: redistricting battles, candidate recruitment, and the influence of the top of the ticket.

The redistricting landscape is complex, with ongoing litigation and gerrymandering efforts in various states, including North Carolina, Alabama, Louisiana, Georgia, Florida, and New York. The outcome of these legal battles could determine whether the 2024 re-redistricting results in a net gain for either party or remains largely unchanged.

Bottom line: As the nation approaches the 2024 House elections, Wasserman's analysis paints a vivid picture of the challenges and opportunities facing both Democrats and Republicans in their quest for control of the House of Representatives.

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